China’s Inflation Falls

China’s consumer prices fell for a third month in April on food and commodities, aiding government efforts to boost spending in the world’s third-biggest economy., Bloomberg 5/11/2009 9:13:03 AM

Prices dropped 1.5 percent in April from a year earlier, after falling 1.2 percent in March, the statistics bureau said today. Producer prices fell 6.6 percent, the most since Bloomberg data began in 1999.

Falling prices may lower costs for businesses and encourage consumers to spend, helping the economy to recover after exports collapsed. The absence of inflation makes it easier for the central bank to maintain its moderately loose” monetary policy after five interest-rate cuts last year.

In April 2008, inflation was 8.5 percent as pork prices soared because of a shortage of the meat, a Chinese staple. The gains encouraged farmers to raise more pigs, leading to an oversupply.

Now, pork has tumbled close to a level that may trigger purchases by the state to buoy farm incomes, the government says.

Food, which makes up the biggest part of the index, fell 1.3 percent from a year earlier, the statistics bureau said. Pork declined 28.6 percent.

An exception among the declines for food was grain, which climbed 5.5 percent.

Non-food prices fell 1.5 percent, including a decline of the same size for consumer goods. Garments fell 2.5 percent. Services costs dropped 1.4 percent and utilities declined 2.2 percent.

Producer prices plunged on lower raw-material and energy costs. Crude oil fell 53.6 percent, the government said.

The central bank is on guard against the risk that consumers, expecting prices to decline, will delay purchases, choking off demand and stifling economic growth. The government’s options include raising state-controlled prices of resources and purchasing farmers’ products to stabilize prices.

The flood of money into the economy from record new lending and a 4 trillion yuan ($586 billion) stimulus package makes protracted price declines less likely.

Around the globe, the worst economic slump since World War II has added to the risk of deflation, while the response to the crisis -- governments pumping cash into their financial systems -- may fuel inflation as economies revive.

China’s Inflation Falls